Federal Appeals Court Nixes Arizona Medicaid Co-pays

The 9th U.S. Circuit Court of Appeals ruled yesterday against mandatory co-pays that Arizona charges poor and disabled persons when they use Medicaid health services. The co-pays were approved by U.S. Department of Health and Human Services Secretary Kathleen Sebelius under Medicaid state plan waiver provisions.

The Court said that the federal law provides for waivers as long as a program has a "research or demonstration value" but that the record clearly showed that the Arizona co-pays were put into place to save money in the state's Medicaid budget.

"The administrative record reveals that the purpose of Arizona's waiver application was to save money," wrote Judge Richard Paez. "There is little, if any, evidence that the secretary considered the factors (federal law) requires her to consider before granting Arizona's waiver. Thus, the secretary's decision was arbitrary and capricious."

The Arizona Republic reported that the Arizona co-pays range from $4 to $30 and were first approved by legislators in 2003. After just 4 months of implementation, the co-pays were halted as courts considered a lawsuit. In November 2010, the stay was lifted for childless adults and persons who become eligible for Medicaid after "spending down" their savings on medical costs. The Arizona Republic says among those affected are thousands of homeless people and those with chronic conditions, including an estimated 5,500 people diagnosed with serious mental illness.

Federal officials have two weeks to consider an appeal or providing the court more information. An Arizona Medicaid official told the newspaper, "It's not the court's place to tell the secretary, 'We think you didn't think this through.' Other states have higher co-pays and other courts have never questioned the bounds of the secretary's discretion."

Medicaid co-pays have long been contentious issues in the states. Some states want to use them to encourage more responsible consumer behavior, just as private insurance companies do. And it doesn't hurt that they generate some revenue -- and the potential for even more if unnecessary emergency room visits and the like are curtailed. Advocates for low-income persons argue that the co-pays make care unaffordable and may prevent access to necessary health care and lead to more expensive treatment later.

It is hard to imagine the ruling won't be appealed. There is plenty for folks to dislike. It calls into question the Secretary's authority over states' Medicaid state plans and may remove a budget-cutting tool from states' toolboxes.